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by neha.patni » Sun Mar 07, 2010 11:56 pm
Stock analyst: "We believe Company A's stock will appreciate at 35% a year for the next 5 to 7 years. Company A just became the leader in its industry and we expect its sales to grow at 8% a year."
Commentator: "But how can the stock's price be expected to grow more quickly than the company's underlying sales?"
Which of the following facts would best support the stock analyst?
A. The company's expenses will be declining over the next 5 to 10 years.
B. The company just won a patent on a new product.
C. Company A's stock is currently overvalued by a significant amount.
D. The 5 to 7 year time frame is too long for anyone to accurately forecast.
E. Company A's industry peer group is expected to experience stock appreciation rates of 30% over the same time horizon.
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by ajith » Mon Mar 08, 2010 12:31 am
neha.patni wrote:Stock analyst: "We believe Company A's stock will appreciate at 35% a year for the next 5 to 7 years. Company A just became the leader in its industry and we expect its sales to grow at 8% a year."
Commentator: "But how can the stock's price be expected to grow more quickly than the company's underlying sales?"
Which of the following facts would best support the stock analyst?
A. The company's expenses will be declining over the next 5 to 10 years.
B. The company just won a patent on a new product.
C. Company A's stock is currently overvalued by a significant amount.
D. The 5 to 7 year time frame is too long for anyone to accurately forecast.
E. Company A's industry peer group is expected to experience stock appreciation rates of 30% over the same time horizon.
We need to find out a choice to reconcile the apparent paradox presented in the arguments.

A. Correct - Gives an alternate explanation of how profits can grow faster than the sales growth
B. Doesnt give an explanation of how stock price can grow faster than sales
C. That undermines the Analyst's argument
D. Again Undermines the Analyst's Argument
E. Irrelevant Fact

A IMO
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by delhiboy1979 » Mon Mar 08, 2010 1:43 am
COuld you explain why E is irrelevant. If the competitor's stocks depreciate does it not imply A's tock grows quickly
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by ajith » Mon Mar 08, 2010 1:46 am
delhiboy1979 wrote:COuld you explain why E is irrelevant. If the competitor's stocks depreciate does it not imply A's tock grows quickly
competitor's stocks depreciate does it not imply A's tock grows quickly - No it doesn't, it could happen that the industry as a whole is going down

competitor's stocks appreciate does it not imply A's tock grows quickly - No it doesn't, it could happen that A's management did some blunder and A is lagging behind the industry

So answer choice E does not provide any valid bridge between the apparently contradicting statements in the argument.
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by gmatmachoman » Mon Mar 08, 2010 2:04 am
neha.patni wrote:Stock analyst: "We believe Company A's stock will appreciate at 35% a year for the next 5 to 7 years. Company A just became the leader in its industry and we expect its sales to grow at 8% a year."
Commentator: "But how can the stock's price be expected to grow more quickly than the company's underlying sales?"
Which of the following facts would best support the stock analyst?
A. The company's expenses will be declining over the next 5 to 10 years.

E. Company A's industry peer group is expected to experience stock appreciation rates of 30% over the same time horizon.
@Ajith!!

Agreed E will be extreme to consider. But A also has hidden assumptions.

It say's expenses are declining. But nothing has been mentioned regarding the degree of percentage It can be nominal say 3% or stellar 50% reduction.

So how to fix that issue??
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by neha.patni » Mon Mar 08, 2010 2:08 am
thanks ajith
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by ajith » Mon Mar 08, 2010 2:31 am
gmatmachoman wrote: @Ajith!!

Agreed E will be extreme to consider. But A also has hidden assumptions.

It say's expenses are declining. But nothing has been mentioned regarding the degree of percentage It can be nominal say 3% or stellar 50% reduction.

So how to fix that issue??
Agreed that B may have issues when you take up specific numbers- Since the numbers are not given, there is a possibility that it can explain the paradox. I think that is good enough to consider that it is a valid option
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by Phirozz » Mon Mar 08, 2010 3:42 am
neha.patni wrote:Stock analyst: "We believe Company A's stock will appreciate at 35% a year for the next 5 to 7 years. Company A just became the leader in its industry and we expect its sales to grow at 8% a year."
Commentator: "But how can the stock's price be expected to grow more quickly than the company's underlying sales?"
Which of the following facts would best support the stock analyst?
A. The company's expenses will be declining over the next 5 to 10 years.
B. The company just won a patent on a new product.
C. Company A's stock is currently overvalued by a significant amount.
D. The 5 to 7 year time frame is too long for anyone to accurately forecast.
E. Company A's industry peer group is expected to experience stock appreciation rates of 30% over the same time horizon.
IMO A. All other options cannot prove that profit is going to rise which is having a bearing on share price
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by kstv » Mon Mar 08, 2010 10:13 am
IMO E.

In the industry as a whole will grow by 30% then expecting the Market leader to grow by 35% is not a big deal. Also add to that 8% growth in sales.
The analyst is talking about specific figures.

OA please.
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by reply2spg » Mon Mar 08, 2010 10:26 am
OA is A

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by joseph32 » Sun May 15, 2016 11:50 pm
I think A is the right answer here.
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